A rise in the minimum wage won’t hurt Australia’s recovery. It will help it
Australians are getting accustomed to contradictory economic messages from the federal government. The economy has miraculously recovered when the government announces cuts to jobkeeper and the coronavirus supplement. But it’s on the precipice of collapse when the government argues against a significant increase in the minimum wage. The only consistent thread in the government’s approach is that whether the economy is weak or strong, workers should get less.
In its submission to the Fair Work Commission’s annual wage review (which determines whether 2.3 million award-covered workers will get a wage increase this year), the government is opposing any significant increase in the minimum wage. It claims that even a moderate wage increase would threaten economic recovery and employment in the wake of the pandemic. Its standard line is: “If employers can’t afford wage increases, they’ll cut jobs!”
This is wrong on many counts. First, businesses can afford higher wages. Profits increased by 15% in the last 12 months. It’s the first recession in Australian history when profits got bigger, not smaller.
And the biggest beneficiaries of a freeze in minimum wages would be the powerful market dominators like Woolworths, Coles, and utilities and telecommunications companies who profited so handsomely during the pandemic. Not only capturing most household spending on everyday essentials, they have by far the biggest minimumwaged workforce – hundreds of thousands strong – not the small operators who the government regularly invokes in its photo-ops.
For smaller firms, their biggest barrier to economic recovery is weak confidence and spending among Australian consumers. But that, in turn, depends on Australians having adequate wages in their pockets to spend. So the obsession of this government with suppressing wage growth (that started years before the pandemic) actually backfires for the business sector as a whole.
The Fair Work Commission’s minimum wage decision, to be announced in May, comes at a critical moment in Australia’s recovery from the pandemic. Before Covid hit, wage growth had already slowed to the slowest sustained pace since the 1930s Depression – growing at an annual average rate of under 2% since 2015. Now, wages are almost at a standstill.
That’s why most economists concur we need higher wages, not lower. And minimum wage increases are especially important in a recession when wage cutting pressures and deflation threaten wider macroeconomic stability. It’s why the Australian Council of Trade Unions has proposed a reasonable 3.5% increase in the minimum wage. It would underpin a much-needed rebound in spending power across the economy.
Minimum wage increases help workers who need it most: the lowest paid, more likely in casual jobs, and concentrated in the sectors most impacted by Covid (like retail and hospitality). Most can’t collectively bargain with their employers, so they depend on minimum wage increases to keep pace with the cost of living and capture a share of productivity and profit gains. In fact, the proportion of all Australian employees dependent on the minimum wage and awards for pay rises is growing: from 15% to 21% since 2010.
Women also depend disproportionately on this decision – they comprise 61% of all award-dependent workers. With women returning to parttime, casual and low-paid roles last year, the gender pay gap across all jobs (including part-time and full-time) widened from May to November, reaching 31% . The single most powerful thing the federal government could do close the gender pay gap would be a strong increase in the minimum wage. But holding back the incomes of lowest-paid women would be consistent with the government’s existing track record. The premature cancellation of jobkeeper, the elimination of the poverty alleviating coronavirus supplement (received by 15% of all women at the worst part of the pandemic), and ending free childcare: this government is nothing, if not consistent.
Australia once had one of the strongest minimum wages in the world, but no longer. Measured relative to median earnings, Australia doesn’t even rank in the top 10 industrial countries anymore. The UK, France, New Zealand, Portugal and several other countries have higher minimum wages. New Zealand just increased theirs by 6% – and their economy is booming. They understand that propelling a full recovery requires workers to have money to spend. Why can’t our own federal government see the same truth?
More than almost any other issue, the debate over minimum wages reveals starkly the fundamental schism in Australia’s increasingly unequal economy. On one side are large and powerful companies determined to weaken what remains of workplace laws supporting workers’ incomes. On the other side are millions of workers who depend on minimum wage laws to secure their basic needs, and small businesses which depend on domestic spending power. By opposing a strong increase in the minimum wage when our economy needs it more than ever to fuel recovery from the pandemic, the Coalition government shows clearly what side it is on.